Daily Management Review

Iron Ore At The Center Of A Fight Between Hong Kong And Singapore


Iron Ore At The Center Of A Fight Between Hong Kong And Singapore
It is being called a war over iron ore.
Singapore Exchange Ltd.’s leading position in the futures commodity market for iron ore is being challenged by Hong Kong Exchanges & Clearing Ltd. which is starting futures for the same – a commodity that has been a popular way to bet on China and one that’s been extremely volatile. This has pitted Asia’s two financial heavyweights against each other head-to-head.
The SGX has become the largest clearer of the derivatives in the world after it started its first swap contracts in 2009 and now the HKEX has started trading in the futures of the commodity on Monday and has pitted its new dollar-denominated contract directly opposite to those being offered by the SGX. Waiver of all trading fees for the new product for a period of six months has also been announced by HKEX as a part of its opening offer to new traders trading there. 
Iron ore as a commodity has been at the center of the global futures traders; interests and is at the heart of the global economy, specifically for China which is its largest user. The manner in which the SCX’s offered the derivative caused the sway in the global market in 2016, found a study by the Goldman Sachs Group Inc. which reiterates the importance of the commodity. The commodity is also used as a tool for hedging by miners and mills, as well as by traders and funds.
“They’re going up against a more established offshore contract in Singapore,” said Hui Heng Tan, an analyst at Marex Spectron. “It’s too early to gauge whether the new contract will gain much traction. Some of that will depend on the terms they’re able to offer, such as trading fees and margins, as well as the liquidity of the contracts.”
There has been a wild ride for miners and investors which has resulted in the shakeup. The price of a metric ton of iron ore in 2013 was more than $100. But as an expectation that China’s interests in the ore would wane and an over-supply in the market caused the price to fall below $40 by 2015. And as the supplies from Australia and Brazil boomed ad as China imposed an environmental clampdown, the price of iron ore has swayed between $95 and close to $50 this year.
And last year, a 95 percent jump in the trading of the derivative was witnessed at the SGX due o those factors. 
“HKEX believes this contract is going to be complementary,” a spokesman said. “With very active onshore iron ore futures on the Dalian Commodity Exchange and the heavy weighting of China in the trading of iron ore and iron ore derivatives, HKEX believes a transparent offshore iron ore futures will allow more efficient and timely price interaction among the markets.”

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